John Chambers, Chairman & CEO, Cisco

Chambers was the first major executive to sound the alarm last January that corporate IT spending was slowing. In April, he took the podium at a Cisco partner conference to candidly advise solution providers that the market had changed and they needed to change with it. Later in the year, he played a pivotal role in urging the Securities and Exchange Commission to relax stock buy-back rules after the Sept. 11 terrorist attacks in order to buoy the market.

In his genteel Southern drawl, Chambers also continues to reassure the industry and the larger investing public that the future is bright,despite the bleak economic outlook that dominates mainstream and trade news headlines,and that "the Internet will change the way we live, we work, we play."

That Chambers mantra is one reason he has been aptly dubbed the chief evangelist of the Internet,that and his penchant for working an audience by deliberately stepping out from behind the podium and roaming the aisles, making personal eye contact with as many listeners as possible as he preaches that day's sermon.

Chambers is still preaching his upbeat Internet gospel, but his tone is a little more somber these days as he faces a tougher short-term reality. In a Las Vegas hotel room during the partner conference, the affable Chambers got up from his chair and poured a glass of water for a thirsty reporter. He likes to put people at ease. But the interview was not going to be easy. Chambers had earlier announced plans to lay off 8,500 employees. Asked about the layoffs, he became quiet, looked up at the ceiling to gather his thoughts and took a deep breath before he answered. "I hate layoffs," he said. "I thought I would be able to retire without having to touch that issue."

Cisco has stumbled this year financially, its first public misstep in nearly a decade, and a humbled Chambers slashed his own salary to $1 in a gesture of penitence. But Cisco wasn't as bruised as much as its major networking hardware rivals. Both Nortel and Lucent, as examples, suffered frequent, massive layoffs and divested business units. They also face the potential that their battered stocks, hovering in the $5 range, make them takeover targets.

By contrast, Cisco is weathering the storm relatively well, a tribute to Chambers' ability to shift the tone of his sermon quickly and mobilize faithful Cisco employees to act as missionaries for new growth. Chambers told a reporter in an interview published last summer that he constantly redefines the company's divisions and reassigns executives as part of a strategy he has described as "divide and grow." Pointing to Intel Chairman Andy Grove's famous stance on the benefits of paranoia, Chambers claimed that the competitive paranoia inside Cisco makes Grove look relaxed.

Analysts say Cisco could lay off another 5,000 employees soon, but the toughest times may be over for the networking behemoth. While Cisco lost $1 billion for the fiscal year ended July 28, Chambers reassured Wall Street last month that the company would meet earnings expectations for its first quarter ended Oct. 31.

Trained as a lawyer, Chambers' summations on a given situation have generally been candid and on the mark, and his prognostications are now widely taken as a bellwether for not only the industry but the economy.

"He really has led the industry through this roller-coaster ride we've had in the past year," says Charles Giancarlo, a Cisco senior vice president. "He's been doing a report from the front lines. I think the markets have been taking their cues from John on what was really happening."

A big pre-election supporter of President George W. Bush, the West Virginia native and father of two was also quick to act in the nation's interest after the Sept. 11 attacks. Without fanfare, Chambers prompted the Cisco board to quietly donate $6 million to the disaster relief fund and urged the SEC to relax rules on stock buy-backs to steady the market in the first days of trading following the tragedy. The SEC did relax its rules, and several technology companies joined Cisco in buying stock when the markets finally reopened the following week.

Chambers also gave employees free reign to take measures necessary in the field to help customers and solution providers get back to business as quickly as possible. Cisco arranged to have equipment from West Coast distributors ready for a military airlift to the East Coast within eight hours of the attacks, says Tom Mitchell, retiring senior vice president of worldwide channels at Cisco. "John said if there was any aid we could provide or any support we could provide to get companies back up and running, do it," Mitchell says.

Solution providers, many of whose businesses are now closely tied to Cisco's fortunes, laud Chambers for clearly communicating with partners, as well as investors, as the company faced challenges this year.

"Chambers said way ahead that times were going to be tough. People respect that and look to him for guidance. He has given Cisco partners straightforward guidance on what we need to do to get through this," says Ken Bywaters, director of e-business for Berbee Information Networks, Madison, Wis. "I have absolute confidence in him and in Cisco."

John Freres, president of N2N Solutions, Schaumburg, Ill., concurs with this view: "I truly believe he's a straight talker. He has been very humble about the position Cisco is in."

From that position, Chambers has provided valuable insight for Cisco's channel organization, says Bob Bruce, vice president of U.S. channels for Cisco. "He has a keen ability to manage through difficult times by providing direction," he says.

Chambers' ability to lead in the face of change is evident in Cisco's revamped channel program, which rewards solution providers that add value with vertical or technical expertise at the expense of those that don't. Cisco now requires partners to achieve at least one technology specialization to maintain their certification or risk being dropped from the channel program altogether. And by next year, most partners will have to meet customer satisfaction targets to retain their status. This latter measure, which has been used internally to measure the performance of Cisco employees for some time, could reduce the fold of certified Cisco partners.

It's a big change in philosophy for a company that has often been accused of having too many channel partners for its own good,quietly called the 7-11 of networking. But it was a necessary move in order for the company to advance in a dramatically different marketplace, according to Chambers. "You have to deal with the marketplace the way it is, not the way it used to be," he says.

That was the tough, candid message that Chambers delivered at the last partner conference: In today's economic environment, solution providers need to wean themselves from commodity networking solutions and invest in selling emerging technologies where risks and rewards are higher.

"Almost every mistake I've made at Cisco was because I haven't moved fast enough," Chambers says. "I challenge my partners to think the same way. It is not without risk. I don't want to mislead anybody here. Most companies will make it, but a number of them will not."

Not all solution providers are comfortable with Cisco's new direction. Chambers is asking them to make big investments to gain certifications that may or may not provide a return on their investment. "Cisco has an overzealous approach to the channel, dictating what they want us to do," says Grant Freeman, president of eSystems Design, Brea, Calif.

Solution providers such as Freres, however, credit Chambers with not just requiring more of partners but also providing the training, marketing and sales programs to help them move into new technologies. "John is not one of those CEOs who partners when partnering is advantageous and moves to direct [sales] when it isn't," Freres says. "He has told us we need to change our business models and given us the tools to do it."

Chambers, meanwhile, is not only preaching the Internet gospel with renewed zeal, he is practicing what he preaches. Cisco recently converted its entire phone system to IP telephony, makes wide use of video conferencing and put an Internet-based sales-reporting system in place.

The sales-reporting system is one reason Wall Street hangs on Chambers' every word. Analysts say he can tell you on any given day what a regional sales person is doing in Seattle or Sao Paolo. It also enabled Chambers in January to pinpoint Dec. 4 as the exact day when Cisco's sales began falling below forecasts.

Another reason Chambers' words carry a lot of weight in the industry is simply because he has proved his credibility during a trying year. Now that Chambers is signaling that the worst may be over for bellwether Cisco, that could be good reason for optimism.